Friday, 10 October 2014

Bad Capitalism: The Pacific Lumber Story

RIP

In January 2007 the venerable Pacific Lumber Corporation filed for bankruptcy.

Founded in 1863, the company had been engaged in battle with environmental campaigners for the last twenty years of its existence.

One eco-warrior had been killed by a falling tree, another maimed by a bomb and hundreds of others injured or arrested.

Yet in the end it wasn't the Greens who had seen off the venerable old company, but Wall Street. This is the dramatic, tragic and cautionary tale of what can happen to a company with high moral principles, but low profits, in the modern world.

The King of Trees

Photo Michael Nichols

Northern California is the land of the giant redwood. For 20 million years over 2 million acres of the coastline had been covered in Sequoiadendron giganteum, the tallest of all living creatures. Able grow to over 300 feet tall they can live for more than three thousand years.
But the United States of America has not had a good relationship with the tree. Well known to the American Indians, and noticed by at least two passing travellers, the first tree to be officially discovered by the White Man was chopped down before anyone was even sure there were any others.

They've been chopping them down ever since. The wood is hard and resistant to decay, but brittle and likely to shatter when fallen. As a result only half the wood cut usually made it to the mill. The tree grows slowly and in order to germinate the seeds need to dry in the sun. Unless regular wildfires cleared the vegetation beneath the trees there would be no new trees. After a century of clear-cutting and ill advised 'total fire suppression' by the National Park Service the redwoods that had covered the hills were seriously depleted. By the 1980s over 90% of the coastal redwood forest was gone.

A Sustainable Business

County of Humbolt Collection

But amongst the companies that were destroying the forest, one was different.The Pacific Lumber Company, abbreviated to PALCO or just PL, stood out from the crowd in both the way it treated the forest, and the way it treated its workers.

Under the leadership of Stanworth Murphy, president from 1931, they turned their backs on clear-cuts and adopted a plan of "selective cut". PALCO would fell just 70% of the redwoods in a stand, taking the older ones and leaving the vigorous young trees. In half a century these "residuals" would have regrown and the area could be logged again. Once the machinery had moved on from an area it was usually impossible for the untrained eye to tell which sections had been logged.

Partly this benign policy was the result of California giving tax breaks to companies that left part of the forest intact, partly it was smart politics for an industry that was politically unpopular, but in no small part it was down to the personal beliefs of Murphy, a keen huntsman and outdoors enthusiast.

Mr Murphy, as everyone called him, also set the pace of the cut. Even in the 1930s it was clear that the rate at which the the trees were being felled was not sustainable, so PL had a 100-year management plan. Each year their foresters calculated the sustainable yield from their forests and that was how much was taken, no matter what the market price of the timber.

There was no union in PL. They didn't need one. They paid better wages than any of the union shops as well as providing pensions, health insurance and employee stock plans.
PALCO went through the Great Depression without laying off a single
worker whilst their soup kitchens fed anyone who turned up. Once Murphy had employed a business adviser. On being told of the efficiency savings he could make he replied "I can't lay off those people. They're all my friends."

They were debt free, the company pension fund was over-funded and were diversifying into real estate and a successful welding business. Their profits were $44 million after tax on net sales of $280 million. This was less than many of their rivals, but enough to keep the company going.

On the other hand their sustainable cut policy not only preserved the redwood forest, but was increasingly looking like a good business plan. Whilst rivals were reduced to felling secondary and even tertiary growth, PALCO found itself sitting on the world's largest supply of mature redwood forest and had cornered the market in "uppers", flawless maroon-coloured boards that you only get from the heart of giant redwoods.

When Stanwood Murphy handed the reins over to his son Warren the company continued on its own way, providing steady employment and a forty hour week to its devoted employees. Today he might found a niche for himself on the Sustainable Business circuit, but in the corporate America of the 1980 he and PALCO appeared to be relics of another era. Their prudence meant PALCO were now sitting on $1.8 billion worth timber. Being asset rich but relatively cash poor would be good business sense in an ideal world, but in eighties America it could be fatal.

The Asset Stripper

Charles Hurwitz was the very model of the modern corporate raider, a real life Gordon Gecko but without the charisma. A slick salesman he would in due course tell the victims of his hostile takeover "There's a story about the golden rule. He who has the gold rules."

Hurwitz started off selling mutual funds before embarking on the predatory career that would eventually make him a billionaire, by taking over United Savings of Texas, the largest savings and loans company in the state, in 1982. More acquisitions funded by junk bonds followed until, in 1985, his Maxxam Inc had Pacific Lumber in his sights.

Hurwitz's co-conspirator was Michael Milken, 'the pope of junk bonds,' whose Drexel Burnham Lambert bank provided high-yield bonds to finance takeover bids. This was the first decade of Monetarism and thanks to dealers like Milken it was now possible a company to launch a hostile bid for another ten times its size. Supposedly liberalisation of the financial markets increased the efficiency of the economy.

PALCO was about to find out what "efficiency" meant.

Hostile Takeover

PALCO operations were centred on the town of Scotia. This was a
Company Town, the last in America, but Scotia was nothing like the
Grapes of Wrath.

Fashions in everything except pick-up trucks were years
behind the rest of America and in this Redneck workers paradise it was considered a good laugh to call a German immigrant a Nazi.

When news of the possible takeover broke many residents were for getting their deer guns and bushwacking Hurwitz. One executive, passing the town's long suffering German, said "Better stoke up those ovens again, Hainie, we got us another Jew to burn."

Officially though PALCO was not for sale. A series of legal protections had been put in place in 1981 to safeguard the company. As the Board explained to the shareholders in a letter "Corporations
have an obligation to society as a whole. In particular, companies
charged with the stewardship of scarce resources such as timber have a
duty to use such resources wisely."

But under Ronald Reagan Wall Street had gone takeover crazy and shareholder value was everything. Neither legal agreements, nor .30-06 bullets, nor casual racism was going to stop Maxxam Corporation. Using Drexel's junk bonds they were offering shareholders greater returns than if they stayed with the Murphy's. Refuse to sell and the company would face a legal challenge it couldn't win. The board folded and on 27 September 1985 Hurwitz bought Pacific Lumber with $800 million he didn't have.

Warren Murphy had resigned the previous day. PALCO was going to change.

Changes

Hurwitz was heavily in debt, but he had also just acquired nearly $2 billion in assets. To pay his debts those assets needed to be liquidised - quickly. The first thing Hurwitz did was raid the company pension fund. Half was stolen immediately, whilst the rest was invested in one of Drexel's junk bonds, the Executive Life Insurance Company.

Maxxam Inc now owned more giant redwoods than any other private company. Selective cutting was abandoned in favour of clear-cutting the forest. The cut rate was officially doubled. Unofficially in was believed to have been trebled, at least. The loggers' forty hour week was a thing of the past. Working for PL was not as much fun as it used to be.

Thousand year old trees started to topple at ever increasing pace and it was only a matter of time before someone noticed.

Resistance

Greg King in All Species Grove c. Greg King

The forest that PALCO was hacking into was largely unknown to the outside world. Few people had the skills or the inclination to wander so far from the beaten track. One who did was Greg King, whose family had once logged the coastal hills.

Greg was working as a reporter for an alternative newspaper when he met Darryl Cherney, a former English teacher from New York who had quit his job to become an itinerant folk singer. He was now living in Garberville. Garberville was about thirteen miles from Scotia, but was a different world to the limber town. In Garberville they didn't harvest trees, but marijuana.

Darryl's Dodge van had broken down on the way to tree planting so Greg gave him a lift. On the way they talked of the destruction PALCO was wrecking on the redwoods and planned what they were to do about it.

Earth First!

Darryl Cherney

The banner that Greg and Darryl decided to campaign under was Earth First! This radical environmental group had been inspired by the book The Monkey Wrench Gang by the US writer and wilderness lover Edward Abbey. Under the banner "No compromise in the Defence of Mother Earth" the group believed in using sabotage ("ecotage") to defend pristine wildernesses.

Avowedly non-hierachical, Earth First! had no leaders and no headquarters. Darryl had spent some time fruitlessly trying to meet up with the group before being told that if he wanted to attend an Earth First! meeting, the best thing he could do was call one.

This they did, calling themselves the Earth First! Redwood Action Team. Greg would scout out the forest, Darryl would organise the demos and the hippies of Garberville would make up the numbers. As 1986 turned into 1987 Earth First! started to get itself organised, and noticed. There tactics were to hold rallies and stunts whilst stopping the cut by carrying out 'tree sits' and blockades.

Greg bought PALCO shares and gatecrashed their 1987 AGM. Then he went hiking again. Pushing through ferns ten feet high and knee deep sorrel, he explored deep into PL territory. A logging road led him to a moonscape of devastation amongst the verdant foliage. His map revealed this was the area the loggers had called Timber Harvest Plan (THP) 86-199. The team had long ago decided that the first step to saving the forest was naming it so Greg decided the place should be called Headwaters.

Saving the rest of it from the loggers was to be his life's mission.

Loggers

"Timber workers don't think about anything except surviving" said one of those loggers, who had already survived of the Vietnam War. In Humboldt County you were either a logger or a fisherman. With the fishing industry virtually wiped out it was an easy choice.

Surviving though wasn't guaranteed. The US Labor department listed logging as the most dangerous job in the USA, but PALCO expected its staff to work ten hours a day, six days a week. This was for a job were wages started at $9 an hour. $5 (allegedly) if you were Mexican.

The job for life was also becoming a thing of the past. PALCO was following the other timber companies in laying off its own woods crews and relying increasingly on"gypos", temporary contractors who bought their own equipment and who could be hired or fired on a whim.

But the loggers remained loyal to their employer and their community. Since the last union had been busted in the thirties they had nothing between them and management. If Maxxam said that Earth First! were costing them their jobs and their livelihoods, then the eco-warriors became their enemy.

In time many would come to look back with regret on what happened, but at the time Scotia was united in its opposition to the hippies trying to save the trees.

EPIC

Woods in 2012

But direct action wasn't the only way to do that.

Greg and Darryl had been working out of the Garberville based Environmental Protection Information Centre, which had been campaigning to save the redwoods for three years. However what made them an effective fighting force was when Darryl recruited Robert Sutherland, alias The Man Who Walks In The Woods, or just Woods.

Woods was eccentric, but brilliant. A self taught botanist, he had been drawn to Humboldt County after a mystical vision of the Indian god Shiva in a glen in the Kings Range, itself named after Greg's family. He lived in a house in the woods bequeathed to him by an equally eccentric Vietnam vet.

EPIC fought its battles in the courts, opposing PALCOs THPs one by one. This hadn't been done before, and soon Woods was pointing out the failings of the government agencies who were supposed to be regulating the logging industry, and winning victories.

EPIC were never to lose a court case, but they were limited in what they could do. In May 1989 Woods wrote to Hurwitz asking him to save Headwaters Forest. PALCO responded by applying to log the forest section by section, knowing EPIC couldn't fight thirty separate legal cases. In January 1990 EF! trespassers found PL had carved a one mile long road into the area.

The Redwood Action team would have to raise their game to save Headwaters.

Judi Bari

Judi Bari

The person who would show them how to do this was Judi Bari. Judi had organised campaigns against the Vietnam War whilst in college, and had been a union activist before joining Earth First! She was a single mother when she met Darryl in 1988. She played the fiddle, he played the guitar and they became partners in music, in campaigning and in life.

Judi challenged some of Earth First!'s more macho tendencies, and helped introduce class and gender issues into the
group that had been unofficially known as 'Rednecks for Wilderness'. Actions shouldn't be in the middle of nowhere, she said, but where people can see them. Loggers shouldn't be regarded as the
enemy, but as much victims of corporate greed as the forest as PALCO
weren't just clear-cutting trees, but jobs.

With Judi on board the Redwood Action Team became more effective, but that would come at a cost. How high the cost was to be the trio did not yet know.

Backlash

Greg King in Headwater c. Greg King

The locals of Scotia reacted to the actions of the hippies first with incredulity, then with disdain and finally with abuse. At first Greg and Darryl didn't mind too much. It all made good copy for the papers.

By 1989 though things were getting serious. Greg had already come back from a days hiking to find a message on his answering machine saying he would "die in the woods". Violence from loggers was common during blockades, as was the absence of a police response. On a protest outside a mill run by Pacific Lumber Greg had been punched to the ground. Dave Galitz, the company's Public Affairs Manager, offered to buy Greg's assailant dinner.

More seriously, in August 1989 Darryl, Judi, her best friend Pam Davis and the four children they had collectively were sat in her little Subaru when a logging truck doing about 45mph crashed into the back. The vehicle flew through the air and concertinaed against another vehicle. Fortunately nobody was seriously injured. When the driver of the truck got out he repeatedly said "I'm sorry. I never saw the children." Later Judi and Darryl discovered he'd been part of a convoy they'd blockaded the previous day.

Death treats were coming through thick and fast, but that didn't stop Judi, Greg and Darryl organising the biggest protest they, or anyone else in Earth First!, had ever organised for the next year. It was to be called Redwood Summer and was to involve activists from all over the country. The plan was for the trio to lead the action. However that was not what happened.

Redwood Summer

Considerable planning went into the logistics of the event, but Judi was equally thorough in planning the politics. She persuaded Earth First! to renounce the tactic of tree spiking. Tree spiking involved driving nails into trees that were scheduled to be cut in the hope of deterring the loggers. The problem was if the trees were felled the nails exploded in saw mill. In a safe mill this only wrecked the saw blade but if safety precautions had been neglected, as had been in the mill in Elk, California in 1987, the result could be serious injury.

Judi also made everyone who turned up for Redwood Summer sign up to a code that read "We will use no violence, verbal or physical, towards any person; we will not damage any property; we will not bring firearms or other weapons to any action, or base camp."

Despite this the death threats continued. When a picture of her in the crosshairs of a gun was pinned to the door of the Mendocino Environment Centre at the start of May 1990 she asked the Mendocino County Sheriff's office to do something. The police said they didn't have the manpower to do so just then but "if you turn up dead, we'll investigate."

On 24 May Judi and Darryl were in Oakland, California on their way to a concert in Santa Cruz. At 11:55AM they were droving
past Oakland High School when the car they were in exploded. Darryl blacked out. When he
came round he was blind in one eye and his ears were ringing. Next to him Judi
was screaming at the top of her lungs.

It looked like the police might have
something to investigate after all.

The Bomb Squad

Within an hour of the blast FBI officers were on the scene. One of the first was Special Agent Frank Doyle of the Terrorist Squad. He was soon joined by fifteen of his colleagues. Less than a month earlier the team had all been in the woods of Humboldt County on a 'bombing training exercise'. During that summer school they had blown up three cars with pipe bombs, two with the bombs placed under the driver's seat.

Doyle, who had been to over 150 bombing crime scenes, looked at the wrecked Subaru and concluded that the bomb must have been in front of the back seat and hence clearly visible to Darryl and Judi. They were both immediately arrested for transporting illegal explosives, Judi whilst the Doctors were trying to save her life in the Oakland Hospital.

The press immediately started running stories about the Earth First! terrorists blown up by their own bomb.

The Third Casualty

Greg King heard about the
bomb whilst addressing a gathering of the media in San Francisco. He
told the journalists they should be covering not only the destruction of
the redwoods, but the government crackdown on environmentalists. Two
days later he attended a vigil for Darryl and Judi outside Oakland
Police Station.

However the strain was now starting to take its toll.
On the way home he became convinced the Earth First! activist giving him a lift
was a government agent. Then, when he started the ignition of his own
car, he feared it would detonate another bomb. Paranoia gripped him. A
week later he returned to the forest but he knew he was done.

The lonely
walks through enemy territory, the violence on the blockades, the death
threats and the attack on his friends had drained his personal
reservoir of courage dry. He would eventually return to activism, but for now it was time to take a break.

Jail Time

Redwood Summer carried on, but with the three leaders out of action, and the press labelling Earth First! as violent terrorists, it did not get the national coverage it deserved.

However just before the summer got going, the junk bond market collapsed. One of the first casualties was Drexel, which went bankrupt in February 1990. The Executive Life Insurance Company, where the PALCO pension pot was now invested, also took a major hit. It limped on until April 1991 before the authorities stepped in and seized control. It took $1.5 billion of public money to save the company in what was then the third largest bailout in US history.

By this time the 'pope of junk bonds' himself, Michael Milken, was starting a ten year jail term for fraud.

Not proven

But Judi and Darryl would not be following him into the slammer.

When pictures of the bombed car were eventually published they clearly showed the bomb had been directly under Judi's seat. It would also subsequently be revealed the bomb was hidden by a towel and triggered to explode when moved. The explosion was not an accident, but an attempt at murder. Agent Doyle was either wrong, or he had lied.

In July 1990 the charges against Darryl and Judi were quietly dropped, but no other suspects were ever charged.

Victory?

Despite injuries that left her permanently disabled Judi Bari would return to activism. Tragically she died of breast cancer seven years later in 1997. By this time I was involved in supporting actions against logging in the USA on this side of the Atlantic. I was sure I would one day cross the pond and meet her. I am gutted that this never happened.

Rally in Carlotta 1997 c. Mark Bult

The campaign to save Headwaters Forest though continued. In 1995 a rally in Carlotta attracted 2000 people, the largest anti-logging action in US history. There were 265 arrests for civil disobediance.

The next year this record was beaten as more than 6000 people blockaded the main logging road into Headwaters and 1033 were arrested for symbolically trespassing on PALCO land. The protesters remained peaceful, as Judi wanted, although the police continued to use pepper spray and what was termed "pain compliance" to move them. Using cotton buds to put pepper spray directly into the eyes of locked-on protesters was a US speciality.

c. Mark Bult

But the outside world was finally starting to notice. Saving Headwaters became a minor part of Bill Clinton's campaign to get re-elected in 1996. The administration started to negotiate, but Hurwitz once again showed he was the master of the deal.

Headwaters could be saved, but it would cost the taxpayer $480 million. In return Hurwitz would drop his Fifth Amendment Takings Lawsuit against the government. Hurwitz was claiming that by enforcing the regulations on protecting endangered species the government was unlawfully seizing his private property. He was effectively suing the US government for upholding the law.

Two months before the vote to re-elect him, Clinton agreed the deal. 7472 acres of redwood forest became a nature reserve, but in return PALCO were to be given free reign in the other 200,000 acres they owned.

Death in the Forest

So actions to stop the redwoods being felled continued. In January 1998 Julia "Butterfly" Hill broke the record for a 'tree sit' when she climbed a 200 foot redwood called Luna and stayed there for two years.

David Chain

In September that year a group of Earth First! activists, including 24 year old David 'Gypsy' Chain confronted loggers within Headwaters. They were illegally felling trees in the nesting ground of the marbles murrelet, a seabird that flies inland once a year to lay just a single egg on the branches of a redwood.

52 year old logger Arlington Ammons lost his temper. Cursing that he didn't have his gun with him he vowed to aim a tree at Earth First! instead. The first half dozen missed and the group withdrew to eat lunch. Then Ammons felled a one hundred year old redwood, 135 feet high and three foot across at the base, without warning. It landed directly on Chain.

PALCO denied they had been reckless. The Humboldt County District Attorney refused to press charges against Ammons or PL but said he had thought about citing Earth First! for involuntary manslaughter.

Then in November 1998 Pacific Lumber made history again when they became the first logging company in California to lose its license. They had racking up over 300 violations of the Forest Practise Code in the previous three years.

Less than ten years later they went bankrupt.

Legacies

PALCO got its license back inMarch the next year as part of the deal that finally brought the Headwaters Forest Reserve into existence.

This was an amazing achievement for the collection of misfits that made up Earth First! Making it up as they went along, and with almost no help from the big environmental groups, they had saved Headwaters at least, but the cost had been high.

The tree which killed David Chain still lies where it fell. There is a memorial there to the man who "always loved the outdoors and adventure (and) couldn't stop talking about the beauty of the redwoods." It was vandalised in 2007.

In 2002 a jury agreed that the FBI had violated Judi Bari and Darryl Cherney's civil rights and awarded their estates $4.1 million. Still no-one else has been charged in relation to the bombing, which remains unsolved.

In 2004 the City of Oakland declared 24 May as Judi Bari Day.

In the end Michael Milken served less than two years of his prison sentence. He and Hurwitz are now billionaires. However when you count the money spent bailing out Executive Life Insurance Company, buying Headwaters Forest and sorting out the rest of the mess they created then they have cost the US taxpayer far more than a billion dollars each.

Looking back on his days in charge at Pacific Lumber from 2006, Warren Murphy said "We were the good guys. It was fun, it was easy —
it was a great life." He had run a prudent company that had been rich in natural, social and human capital. Over the next two decades he had had to watch almost all of it squandered in order to provide "shareholder value".

The Moral of the Story

The takeover of Pacific Lumber, funded by cheap money, proved disastrous
for almost everyone except Milken and Hurwitz. PALCO went from a
profitable company with a secure future to nothing. Employment in the
logging industry in Scotia dropped from 1000 to just 300. The
world's largest redwood mill now stands derelict.

Although the government stepped in and saved Headwaters, the area now protected is one tenth of that covered by Stanworth Murphy's 100-year-plan.

Whilst we do need the state to protect us from the worst of bad capitalism, rather more we need sustainable companies that take the future of the planet, their employees, and indeed themselves, seriously.